Moderated by Riya, Digital Transformation Consultant at Hyperbots
Riya: Hi, everyone! This is Ria, and I’m very excited to have Mike join us on call today. Mike is a CFO consultant and strategic advisor to many privately held organizations. The topic of discussion for today is goods versus services and the similarities and differences between them when it comes to purchases. So to start off, Mike, would you share your thoughts on the key differences between purchasing goods and services in a typical organization?
Mike: Sure. Thanks. Yeah. So let’s focus on that. It depends on the size of the organization, a big company versus a small company. But let me focus on the general process and how the goods and services differ. The goods would be more on tangible property, where you need to have a specific quantity, specific price, and specific quality of the product you require. It depends on whether you’re buying the raw material or you’re buying the machinery or equipment. It all depends on whether you’re buying for a fixed asset or an inventory. What services would be different? It’s more on the intangible nature, like consulting services, temporary labor, or high-level consulting. It depends on the expertise required, and the level of people needed. The goods are more tangible and measurable, while services are milestone and delivery-based, often tied to hours or retainership agreements. These are the main basic differences between goods and services.
Riya: Got it. So in terms of terms and conditions for procurement, how do they differ between goods and services?
Mike: For goods, as I said, you need specific quantity, quality, and specifications. When you purchase something, you need to ensure that you have specific quantities and specifications, including delivery timing and any maintenance if you’re buying fixed assets. Services can include follow-up services, installation, or after-sales support. On the services side, it’s more about expertise, confidentiality, and deliverables. Milestones and performance levels need to be clearly outlined, including time and labor-based or lump sum agreements. These are the key differences in terms and conditions for goods and services.
Riya: Got it. So would you like to explain when it comes to pricing? How do the considerations differ between goods and services, especially when you’re negotiating with a vendor?
Mike: Goods pricing is largely market-driven. It depends on market rates, supply and demand, and the economic environment. Bulk purchases often allow for negotiations on price and discounts based on payment terms. Services, on the other hand, depend on labor costs and expertise. You negotiate hourly rates or lump-sum fees based on the level of experience and type of service provided. These are the key differences between pricing for goods and services.
Riya: Okay, so could you elaborate on how the approval processes differ when purchasing goods versus services?
Mike: One commonality between goods and services is the need for cross-functional collaboration. For goods, purchasing raw materials, for example, requires operations, procurement, finance, and legal departments to work together. Services, on the other hand, may involve less cross-functional approval, especially for specific departments like legal services, which can order on their own under certain thresholds. Generally, services may involve fewer approval channels if the department has the budget and authority.
Riya: Got it. How does the receiving process differ between goods and services? And what challenges does this present?
Mike: Receiving goods involves matching the goods received with the purchase order and ensuring quality and specifications are met. You also need to match the goods receipt with the purchase order and invoice. Some goods may require testing or verification, especially with machinery or equipment. For services, the process is different as there is no physical product to receive. It may involve verifying hours worked for contractors or ensuring milestones and deliverables are met. This presents challenges in verification compared to the more straightforward process for goods.
Riya: Thank you. So, Mike, would you like to explain how purchase orders play a role in both goods and service procurement? And how does that differ?
Mike: The purchase order is critical for both goods and services. For goods, the purchase order details specific quantities, descriptions, and timing. For services, it’s more descriptive and outlines the type of service and terms. Services may use blanket POs, where a general budget is set, and departments draw from it as needed. In both cases, the PO serves as a formal document for procurement.
Riya: Thank you. So would you like to explain how invoice processing differs between goods and services? And what are the best practices in this area?
Mike: For goods, invoice processing involves three-way matching: the purchase order, goods receipt, and invoice. You ensure that what was ordered matches what was received and invoiced. For services, it’s a two-way match, between the purchase order and the invoice, as there’s no goods receipt. If contractors are involved, you can also match the time cards with the invoice. For other services, you ensure the department head approves the invoice based on milestones achieved. These are the main differences in invoice processing between goods and services.
Riya: Got it. So, Mike, how does vendor onboarding differ for goods versus services? And what should organizations really focus on?
Mike: For goods, you need to assess the vendor’s reputation, certifications, and production capacity. Supply chain reliability and logistics are key considerations. You want to ensure the vendor can meet your material needs without causing delays. For services, you focus on the vendor’s expertise, reputation, and the quality of their workforce. In both cases, you need to ensure the vendor can meet your organization’s specific requirements.
Riya: Thank you, Mike. So that brings us to the last segment of the interview. What role do you see AI playing in streamlining procurement for both goods and services?
Mike: AI can play a significant role in automating workflows, reducing human intervention, and improving accuracy in areas where companies don’t have sophisticated systems in place. AI can help with compliance, predictive analysis, and market data insights. It can assist in real-time data sharing with vendors and create dashboards to track purchases, vendor performance, and inventory levels. AI can offer customized solutions to streamline procurement processes for both goods and services.
Riya: Thank you, Mike.
Moderated by Emily, Digital Transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily and I’m a digital transformation consultant at Hyperbots, and I’m pleased to have Kelly on the call with us, who is the CEO at KM One Ventures. Thank you so much for joining us today to discuss the challenges that organizations face in vendor onboarding, and how AI can help streamline the process. It’s great to have you on board, Kelly.
Kelly O’Neill: Thank you so much, Emily. It’s great to be here today.
Emily: So to start things off, Kelly, could you share your insights on what you see as the primary challenges in onboarding new vendors?
Kelly O’Neill: Absolutely. So, there are a couple of critical things with onboarding new vendors because it’s a complex process. There are a few challenges to be considered, including verification of the credibility and the stability of their finances, legal compliance, and managing documentation each of these areas is critical to reducing risk and ensuring that the vendor can meet the company standards and requirements.
Emily: Understood. So, Kelly, how important is it to verify a vendor’s credibility and capability during the onboarding process and what risks do organizations face if this step is overlooked?
Kelly O’Neill: Yeah. Well, verifying a vendor’s credibility and capability is essential because it directly impacts the reliability of the supply chain and that’s a very important part of this process. If the vendor fails to deliver as promised, It can lead to delays increased costs, and even reputation. Reputational damage, organizations that overlook this step may end up with vendors, you know, who can’t meet their requirements, or ultimately are going to jeopardize their operations.
Emily: Understood also, creditworthiness is another critical factor in vendor selection. Can you explain why this is important and how, you know, organizations typically assess it?
Kelly O’Neill: Yes, definitely, creditworthiness is crucial because it indicates whether a vendor is financially stable and capable of fulfilling orders without defaulting. This is typically assessed by reviewing their financial statements, credit ratings, and payment histories ensuring that a vendor has the financial health to support their operations and minimize the risks of supply, chain, disruption due to financial insolvency.
Emily: Understood also, Kelly, legal compliance is a key concern in vendor onboarding. What are the challenges organizations face in ensuring that vendors are legally compliant, and what could be the consequences of non-compliance?
Kelly O’Neill: Ensuring. The legal compliance is kind of challenging, because it requires verifying that the vendor is properly registered adhering to relevant regulations, and has the necessary certifications. The consequences of noncompliance can be severe which includes, possibly fines, legal action, and damage to reputation. So it’s essential to have a robust process in place to verify all legal aspects during onboarding.
Emily: Got it. So given the various challenges you’ve mentioned, Kelly. How do you see AI help organizations streamline the vendor onboarding process?
Kelly O’Neill: Yeah, definitely, AI has the potential to revolutionize this vendor onboarding process by automating many of the time-consuming tasks that are involved. For instance, AI can quickly verify documents assess credit, and worthiness, and monitor legal compliance this not only speeds up the process, but it also reduces the risk of the human error aspect of things ensuring that only vendors who meet the standards are onboarded.
Emily: Got it. So document verification is also a critical step in onboarding. How can AI enhance the accuracy and efficiency of this process?
Kelly O’Neill: Yeah, AI can significantly enhance document verification by using machine learning algorithms to analyze and authenticate documents. It can, for example, quickly scan documents for inconsistencies, it could detect forgeries, and ensure that all the required information is present. This reduces the time spent on manual checks and minimizes the risk of overlooking critical details and those are typically the human error aspect mix of things so AI can bolster that.
Emily: Got. It makes sense. Also, data security and privacy are major concerns during the onboarding process, right? So how can AI help ensure that sensitive information is protected?
Kelly O’Neill: Absolutely, AI can play a crucial role in data security by implementing advanced encryption techniques monitoring for unusual access patterns, and ensuring compliance with data protection regulations AI-driven tools can provide real-time alerts and monitoring. If there’s any suspicious activity help to safeguard sensitive information throughout the whole onboarding process.
Emily: Understood and finally, just to summarize everything, Kelly, what is the role of AI in managing the scalability of vendor onboarding, especially as organizations expand into new markets?
Kelly O’Neill: AI allows organizations to scale their vendor onboarding process as efficiently by automating tasks like risk assessment document verification, and compliance checks and it enables companies to onboard, a larger number of vendors. So a larger volume, without sacrificing thoroughness is kind of a particularly important aspect when expanding into new markets where the volume of November vendors can be overwhelming or conversion is being done, or something like that, where there are a lot of vendors to be onboarded and it ensures that we can maintain high standards even as there’s growth.
Emily: Got it. Thank you so much, Kelly, for sharing your insights on this important topic. It’s, you know, clear that AI has the potential to significantly enhance the vendor onboarding process, making it more efficient and reliable. So thank you so much for joining us today.
Kelly O’Neill: Thank you, Emily.
